Why? In large part because behavioral economics is in a war with the classical economics that has driven American capitalism since Adam Smith in 1776, on through Milton Friedman, Reaganomics, Bush, Paulson and conservative political ideology.

First, consider Obama's nudgers. Thaler and Sunstein are left-brain, analytical academicians. Thaler says "the idea of nudges is an idea of behavioral economics." But then contradicts himself, admitting that he and Sunstein "did not invent nudging," that in fact, people are "nudged all the time by marketers, religions, spouses," and obviously politicians (he's an Obama adviser) and employers (as editor of "Advances in Behavioral Finance," Thaler is working for Wall Street in the background).

But there's an even bigger flaw in this behavioral-economics definition of nudging that affects what Paulson did at the Treasury for Wall Street and the Goldman Conspiracy. In the behavioral economist's world view, Washington, Corporate America and Wall Street are "paternalistic ... attempting to move people in directions that will make their lives better." Like many liberals, behavioral economists are idealists constructing a utopian world where our leaders have a rare balance of selfless public interest and capitalistic greed, making everyone's lives better.

Unfortunately, while the behavioral-economics model accurately describes the thinking process of the "irrational" average investor, thus revealing how they can be nudged, behavioral economists fail to account for the behavior of those leading the masses. That is, behaviorists fail to account for the all-consuming blind greed that all-too-often drives selfish leaders in Washington, Corporate America and Wall Street.

Fatal flaw in behaviorists' model

Get it? On one hand, the masses are irrational, need nudging by "benevolent nudgers," to use Thaler's terms. On the other hand, the behavioral model assumes leaders will be benevolent. Bad assumption. And a blind spot in the behaviorists' model, one that is a fatal flaw once they move beyond their academic theories and MRI research studies into government policy-making, because leaders' behavior doesn't fit the model. Their behavior is all too often amoral and selfish, if not unethical and even illegal. They are not benevolent nudgers and are rarely motivated for the "good of the people."

Behavioral economics is also at direct odds with American capitalism: At odds with everything from Adam Smith in the 1700's to Nobel economist Milton Friedman, Reaganomics and Paulson's disaster capitalism. Adam Smith's capitalism is very simple: An "invisible hand" guides individual greed by channeling it collectively for the highest good of all society: By pursuing his own interest, each of us is promoting the best interests "of the society more effectually than when he intends to promote it." In short, competition, free markets and minimal government regulation benefit all of us because the invisible hand is a) inherently benevolent and b) does not need any additional nudging from individual do-gooders or behavioral economists who think they can do better than the overarching benevolence of the invisible hand.

Adam Smith expanded on this message in "The Wealth of Nations:" "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest." In short, American capitalism is perfectly reflected in Gekko's motto, "Greed is good." It's not reflected in the idea of benevolent nudgers.

In the final analysis, whether Obama's Democrats are in power or the Republicans regain power, both will use the fuzzy thinking of the behaviorists in a paternalistic, amoral way to manipulate, control and nudge the public while promoting their particular agenda and ideology. That's pragmatic political-capitalism. We saw it flourish under Bush, Paulson and Reaganomics for a few decades. Now we're seeing it emerge under Obama where it is clear that, to paraphrase one congressman, "Wall Street owns Washington" and controls the American taxpayers.

In short, nudging is not radically different for the GOP than for the Dems. Paulson is proof the GOP's version is not a noblesse oblige form of paternalism. His is a plutocratic conspiracy of our wealthy class to control the masses using classical economics and the new behavioral economics and whatever's necessary -- technologies, lobbyists, buzzwords, algorithms, campaign contributions -- to manipulate the masses into acting against their own interests and for the wealthiest class. That's why the Goldman Conspiracy owes Paulson a $1 billion bonus. And why Stone should get Clint Eastwood to play the new Gordon Gekko -- he looks more like King Henry.

Speeding towards another crash?

One final word about predicting a crash in 2011: Back in October we ended with this warning: "The German finance minister blames the current crisis on Wall Street's 'insane drive for higher and higher profits... Wall Street will never be what it was ... The global financial system will become more multi-polar.'" Unfortunately, that "insane drive" is back, fast. And the system has not diversified globally, instead consolidating into a small number of "too big to fail" mega-banks.

That underscores the final prediction I made back then before the November election:

"The moral hazard created by the 2008 bailout will eventually backfire. We relieved Wall Street of the consequences of their costly stupid blunders this time. But we also released them to chase a new raging bull ... blowing a newer, bigger, more lethal credit bubble that will bring down the global economy before the end of the presidential term."

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